Iran's reformist president, Mohammad Khatami, has finally been sworn in for a second four-year term.

The ceremony was supposed to take place on Sunday, but was delayed by a dispute between conservatives and reformists over appointments to a powerful state body.

In the speech that followed his swearing-in, President Khatami made it clear his main objective remains unchanged, despite the setbacks he faced during his first term - to create an Islamic democracy based on the rule of law.

In a clear reference to the events of the last few days, he said the nation had to oversee powerful state institutions.

The unseemly row that held up his swearing-in showed all too clearly that the conservatives who control some of the most powerful state bodies have no intention of opening them up to democratic accountability.

Who rules?

So while Mr Khatami's agenda for the next four years will include a host of pressing problems - an economy badly in need of foreign investment, a society still chafing under the restrictions the Islamic revolution has imposed on it, and Iran's continuing need for better and broader foreign relations - there is now one overarching problem that cries out to be addressed.

[The conservatives] are planning to fight with the reformists on issues which they feel are going to endanger their interests

Iranian political scientist Nasser Hadian

The country's complex system of government - with its plethora of competing power centres - is simply not working to anyone's satisfaction. At root, the question could not be more simple. Who really rules - the president, the parliament, or the supreme leader, at present Ayatollah Khamenei?

Or in fact the unelected conservative clerics who seem to pull so many of the strings from behind the scenes?

More than two decades after the revolution that overthrew the Shah, this fundamental constitutional question remains unresolved.

The delayed inauguration of Mr Khatami at the start of his second term is the result of a row between reformists and conservatives over appointments to the Council of Guardians, a body which vets all legislation.

Until the issue was resolved, Iran was in political limbo with Mr Khatami unable to form a new cabinet.

The row was one more example of the faction-fighting which characterised his first four-year term.

Conservative offensive

Mohammad Khatami won a significant victory in June's presidential elections - all the more so because observers detected a mood of disenchantment among many of his supporters, and indeed an undisguised reluctance on the part of Mr Khatami himself to stand for a second term.

He described his first term as a "tunnel of crisis".

His reformist programme had suffered so many blows - the blocking of reformist legislation, the closure of reformist publications and the jailing of reformist journalists and intellectuals - that many questioned what they had gained from voting for him back in 1997.

Mr Khatami's reform programme has suffered many blows

Nevertheless when polling day arrived, on 8 June, Mr Khatami won 77% of the votes - even more than the 70% he had won in 1997.

For his conservative opponents, it was a second stunning setback. But this time, according to Iranian political scientist Nasser Hadian, the conservatives are in better shape to respond to their defeat.

"They are better organised now. After the last presidential election [in 1997] they were in shock for a year - for two years in fact - and they could not reorganise themselves.

"But now they are much better organised, and they were less surprised.

"It does not mean they were not surprised, but less surprised. And they are planning to fight with the reformists on issues which they feel are going to endanger their interests."

Divided

As in the past, that fight is likely to take place on several fronts. It is widely expected the conservatives will continue their assault on freedom of speech and freedom of the press.

Since they control the judiciary, the security forces and state TV and radio, they are well placed to do so.

But the conservative camp is split into several factions.

Ultimately what happens will depend in no small measure on whether the supreme leader [Ali Khamenei] is ready to encourage[...] reconciliation

US scholar Daniel Brumberg

One faction - made up of what are being called the "new Islamic thinkers" - believes it is time for the conservatives to reinvent themselves and so regain some of the support they have lost with the Iranian public.

Daniel Brumberg, an American scholar and author of a new book called Reinventing Khomeini, thinks the emergence of these moderate conservatives is an important trend.

"There were interesting splits about a year before the election within the conservative camp in and around the editor of [the newspaper] Entekhab, Taha Hashemi, who... has attempted to convince part of the conservative camp that they should reach some sort of understanding with the more moderate reformists."

Reconciliation?

Whether this kind of reconciliation is possible, and whether moderates from both camps can forge a strong middle ground in Iranian politics, may prove one of the key questions in President Khatami's second term.

One factor which Daniel Brumberg sees as crucial in this regard is the role of the "supreme leader" - the man at the top of Iran's political pyramid, Ayatollah Ali Khamenei.

Mr Khatami won a significant victory in June's presidential elections

"Thus far... it would appear that the supreme leader has completely backed the hardliners in the judiciary in their efforts to shut down the reform movement - an act which I think considerably undercut the standing and legitimacy of the supreme leader himself."

By siding with the hardliners, Ayatollah Khamenei broke with the tradition - established by his predecessor, the founding father of Iran's Islamic revolution, Ayatollah Khomeini - that the supreme leader should stand above the political fray.

So one trend to watch will be whether he is willing and able to carve out a more independent role.

New leadership style

Another will be the manner in which President Khatami chooses to push forward his reform programme.

Many believe he has shed some of his earlier naivety: he is no longer under any illusion that the path to reform will be either straight or smooth.

Mr Hadian is convinced Mr Khatami will have to act very differently in his second term.

"In the last four years, President Khatami did not provide the leadership for the reform movement. He was more the spokesman for the movement rather than the leader of the movement...

"If he provides that leadership, the reform movement would be in a very good shape, and I believe that then the chances of an agreement [between the reformists and] the conservatives - for some sort of democratic rule - would increase."

People factor

It is an open question whether the political scene will be dominated by confrontation or conciliation.

While the clergy and their supporters jockey for influence, ordinary Iranians are preoccupied with the economic and social problems of their everyday lives: high unemployment, the boredom and restlessness of the young, and a worrying rise in crime, drugs and prostitution.

All in all, it is a daunting agenda for Mohammad Khatami's second term.